How do retailers account for the debt incurred by issuing gift cards that are never redeemed?

Question

If someone buys a $100 gift card from Target, does this $100 debt stay on their books until the card is redeemed, or do they have an algorithm that slowly depreciates this debt over time? Companies benefit from selling gift cards by assuming many will be lost/never redeemed, how do they know when they’ve achieved profit from these sales?

Assuming the gift cards have no expiration date, which many today don’t.

In: 118

Answer 1

You have it the wrong way round. Gift cards are bought, so that’s money for the company. Much of the time these will be redeemed, so goods then go out. Usual profit is made as if it were a cash sale. Lots of gift cards go unredeemed however and that is all profit.